(Solution Download) The price of car insurance in Philadelphia is twice as


The price of car insurance in Philadelphia is twice as high as in Pittsburgh, even though Pittsburgh has a much higher auto-theft rate. Why? In brief, uninsured drivers cause high prices and high prices cause uninsured drivers.
The higher price in Philadelphia is a result of an upward spiral in insurance prices caused by uninsured drivers. If two drivers, one insured and the other not, collide, the insurance company of the insured driver covers the cost of the collision, even if the insured driver isn?t at fault. In other words, the presence of uninsured drivers increases the cost to the insurance company. The company will pass on these costs to customers in the form of higher prices. Higher prices encourage more drivers to go without insurance, leading to higher costs, even higher prices, and even more uninsured drivers. For cities that get into this upward price spiral, insurance prices will be relatively high. This happens in San Francisco, with prices higher than nearby San Jose; in Miami, with prices higher than Jacksonville; and in St. Louis, with prices higher than Kansas City.

 







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